The fall of Toyota

February 12, 2010

Business schools will be running case studies of Toyota Motor Corp. for a long time to come. Just how does a powerhouse company with a pristine reputation fall so far so fast?

Smugness apparently played a part. Toyota rested on its reputation for quality and often dismissed consumer concerns, behaving as if it were beyond reproach. For years, Toyota resisted consumer complaints about a sludge buildup that wrecked car engines, before it finally settled a class-action lawsuit in 2007. The company was slow to take responsibility for fuel tank corrosion in its Tundra trucks and braking delays in its Prius hybrid. A brake-override system that might have prevented the fatal accidents caused by Toyota's faulty accelerators has been offered for years by some rival automakers.

A corporate culture of secrecy played a part, too. Company leaders in Japan often failed to provide Toyota's American managers with crucial safety information.

And now the company faces the recall of 8.1 million vehicles for accelerator problems, including 2.3 million in the U.S. At least 19 people in the U.S. have been killed in accidents involving Toyota cars with faulty accelerators. Braking problems have forced the recall of 433,000 Prius and Lexus hybrid models worldwide. The resale value of the company's cars — long a selling point — has taken a hit.

Toyota's reputation for reliability, quality and value has been smashed.

For our part, we hope Toyota survives this disaster and gets another chance to thrive.

We say that because the company's success over the last half century has been good for the auto industry. It has even been good for the U.S. auto industry, though fierce competition from imports has helped to push the big three U.S. carmakers to the edge of a cliff.

Toyota and other Japanese carmakers forced the U.S. industry to build more reliable and economical cars. Without that competition, U.S. consumers might still be stuck buying the offspring of Pintos and Gremlins and Vegas and other icons of an era of lousy engineering.

American carmakers have done a pretty good job of catching up. They have closed the gap.

In the J.D. Power and Associates 2009 Initial Quality Study, domestic brands had 112 problems per 100 vehicles, just behind the imports' record of 106 problems per 100 vehicles. The survey found that Ford, Chrysler and General Motors improved their initial quality by 10 percent over 2008, besting the industry overall, which had an 8 percent improvement.

We're not picking favorites here, between the imports and domestics. But it is great that the quality of American cars has vastly improved — and it's safe to say that that would not have happened without stiff foreign competition.

The auto industry is a key to the U.S. economy. If American automakers can restructure, become leaner and more efficient, and keep up quality, reliability and appeal, they can thrive.